Air France-KLM chief sees restructuring working despite losses

Paris
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Air France-KLM chief executive Jean-Cyril Spinetta believes the group's restructuring is achieving its objectives of reducing debt and costs, despite deepening full-year losses.

The SkyTeam carrier, which has made "debt reduction a priority", was boosted by cutting net debt €550 million ($726 million) to €5.97 billion for the year ending December 2012 even though net losses climbed to €1.19 billion from €809 million in 2011.

Speaking at an annual financial results announcement for 2012 in Paris today, Spinetta said the decrease in debt was achieved largely due to the disposal of assets including part of its take in Amadeus, generating proceeds of €466 million. This keeps it on track to reduce debt to €4.5 billion by the end of 2014.

The group lifted full-year revenues 5% to €25.6 billion. Spinetta says the passenger business contributed the best results by far, but this was "unfortunately absorbed in the main part by a sharp increase in our fuel bill".

Air France-KLM's fuel costs "bounced again" by €890 million to €7.33 billion for the year, mainly as a result of the appreciation of the dollar and while fuel "hedgings were positive, they were less positive than in previous years".

Group chief financial officer Philippe Calavia says the higher fuels costs were the biggest factor behind its increased losses. He though adds the net result was also hit by one-off restructuring costs of €471 million as well as additional pension charges at KLM of €81 million.

While Spinetta notes the airline's long-haul operations "on the whole situation was positive", he says its medium-haul business was still underperforming, while Air France's regional bases continue to make losses. He identifies 2013 as a key year in the carrier's turnaround strategy for medium-haul, noting improved schedule productivity will allow Air France to reduce its fleet by 16 aircraft in 2013 but only reduce capacity slightly. Spinetta says that under new employment contracts Air France "pilots are flying more than they used to for salaries that are stable".

Capacity discipline is "one of the key points in our strategy" says Spinetta and 2012 saw record load factors for Air France-KLM of 83.1% as it lifted passenger capacity only fractionally.

Calavia attributes a €53 million shaving of its operating losses to €300 million to the efficiency measures implemented in the group's Transform 2015 restructuring plan beginning to take effect. This includes a general wage freeze at Air France, which will continue into 2013, when it will also apply to KLM. While Transform 2015 will be fully rolled out in 2013, he says the economic climate is "too uncertain" to give an outlook for the year.